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Introduction to Entrepreneurship

Dr. Asif Mahmood


asif.mahmood@umt.edu.pk

University of Management and Technology,


School of Textile and Design

My Profile

And yours future dreams

Course Evaluation
Grading 10%: Class Presentation (including attendance) 10%: Weekly Quizzes on Reading 10%: Assignments (Cases) 30%: Midterm Exam 40%: Final

Definitions
Entrepreneurs are innovators who use a process of shattering the status quo of the existing products and services, to set up new products, new services o For example, Thomas Alva Edison, Steve Jobs, Brin and Page, and so on

Entrepreneurship can be described as a process of action an entrepreneur undertakes to establish his enterprise
Enterprise is the business organization that is formed which provides goods and services, creates jobs, contributes to national income, exports and overall economic development

Why become an Entrepreneur


Wage Employment Work for others Follow instructions Earning is fixed, never negative Routine Job Often fixed hours Does not create wealth for others Entrepreneurship Desire to be their own boss Desire to pursue their own ideas Financial rewards, often fluctuating Vs Creative activity Long hours and hard Work Creates wealth, contributes to national GDP

Production Factors
Fourth Factor

Production Factors
Primary

Entrepreneurship

Land

Labor

Capital Asset

Secondary

Material

Energy

Production Process
Capital Labor

Raw Material

Outputs

Entrepreneurship

Material

Forms of Enterprise
Liability Private Limited Company Shareholders

Corporation
Liability

Business Structures

Sole Proprietorship Shareholders

Partnership

Sole Proprietorship
Advantages
From legal point of view easy to form & dissolve
Least government intervention Very flexible functioning

Complete responsibility and control of the business


All income belongs to the owner

Sole Proprietorship
Disadvantages
Unlimited personal liability
The business ends if the owner quits for any reason Limited ability to raise capital Fewer resources and talents to draw

Partnership
Advantages
Pools the management techniques, decisions
Opportunity of having collective fund Partners are taxed individually

Partnership agreement is easy to accomplish


flexible working Limited government intervention

Partnership
Disadvantages
Not easy to find suitable partners
Unlimited personal liability of at least one partner Hard to get large sums of money

The actions of one partner can make the entire business liable, accumulating debts, etc.

Private Limited Company


Advantages
Limited personal liability
Pooling of resources Easy to establish with minimum of two persons

Profit and loss can be allocated differently than the ownership interests

Private Limited Company


Disadvantages
Limited number of shareholders
Cannot sell shareholders on the stock market More expensive to set up than a sole proprietorship or partnership. The shares cannot be sold or transferred to anyone else without the agreement of other shareholders

Accounts are not private

Corporation
(Public Limited Company) Advantages
The company is a legal entity independent of its shareholders
Limited personal liability Ownership is transferable through stock sales Unlimited life Usually it is easier to earn money A larger pool of talent and expertise The company and its members are taxed separately

Corporation
Disadvantages
Expenses of managing a corporation can be high, e.g., costs of founding, issuing shares, etc.
Lack of representation of minority shareholders Extensive record keeping is required The business is known to everyone including competitors due to mandatory publications of constitution, statements, etc.

Double taxation

Franchise

A Franchise is a business in which the owner of the name or method of doing business (the franchisor) allows a local operator (the franchisee) to set up a business under that name.

Franchisor
Advantages
Way of expanding business quickly
Financing costs shared with franchisee Franchisee usually highly motivated

Disadvantages
Loss of some control to franchisees Franchisee can influence the business

Failure of franchisee can reflect on franchise

Franchisee
Advantages
Business format proved; less risk of failure
Easier to obtain finance than own start-up Training and support available from franchisor

Disadvantages
Not really your own idea Lack of real independence

Goodwill you build up dependent upon continuing franchise agreement

Thank You

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